The Texas Way: Trust the Market, Fix the Queue
How ERCOT can stay ahead by letting large loads take on voluntary curtailment risk—just like generators
Texas policymakers are rightly concerned about ERCOT’s enormous interconnection queues and their rising cost implications for customers. To fix the queue, ERCOT needs to embrace the competitive principles that have made it so successful in the first place, and let investors accept curtailment risks in exchange for faster interconnection.
ERCOT’s generation interconnection process already does this, to its credit, while FERC has struggled for years to reform their own processes. Unfortunately, ERCOT and its utilities are unintentionally slipping into FERC-style interconnection processes for large loads—processes that ERCOT has avoided for generation, and which Texas policymakers must proactively reject. We argue that ERCOT should instead embrace the generation interconnection process when reforming the ERCOT load interconnection process by allowing customers to choose to reduce consumption to energize their facilities more quickly.
ERCOT and its utilities are accidentally repeating the mistakes that have led to years of handwringing in FERC jurisdictions; we need to act now to avoid that and keep doing things the Texas way.
The FERC interconnection process is slow and cumbersome, and recent proposed reforms in FERC Order 2023 aren’t necessarily going to make things much better. Generators must wait for network studies and network upgrades prior to interconnection. Then, if network upgrades are required, generally the generator must pay for them. Prior to FERC Order 2023, some regions did one off studies, which could cause endless new studies if a generator dropped out due to the network upgrade costs. To “solve” this, FERC order 2023 ordered clustering studies, where generators must wait for an annual cycle to be grouped in a “cluster” and studied together.
While different regions are still working through their processes to do changes to clustering and otherwise implement the order, these reforms won’t necessarily make interconnections faster; and instead, just lead to higher development costs, depending on the timing of the project’s development and the time until the next clustering study kicks off.
The ERCOT approach is much different and everything about the FERC might feel like unnecessary handholding. Instead of waiting for utilities to upgrade transmission lines to avoid congestion, ERCOT lets private investors make their own decisions about how to invest their capital. At a high level. ERCOT’s approach is to let investors take the risk of curtailment into their decisions to invest. FERC tries to protect generator investors from curtailment, sometimes to the detriment of project costs or timing. In a business where generator developers take on debt to build a project and then finance it with project revenue, delays only drive up the cost of development: time is money.
The ERCOT approach lets projects get built and earn a return, lessened by some amount of curtailment. Investors taking on this risk lets the whole process move faster, and ERCOT is widely seen as one of the best interconnection processes in the country.
ERCOT already trusts generation investors to manage curtailment risks to protect the grid, and it should do the same for large load investors. ERCOT or the ERCOT utilities require network upgrades prior to the project being built. Although there aren’t the same issues of cost allocation for loads in ERCOT as for generators in FERC regions, time is money and projects that must wait on network upgrades either never happen or sit patiently waiting for network upgrades prior to energization. Large load customers have offered to be “flexible” to improve their interconnection time, but ERCOT and the ERCOT utilities haven’t agreed on a way to incorporate that into planning.
Without interconnection “dispatchability” network upgrades are required and interconnections are delayed, canceled, or restudied. Allowing large loads to occasionally reduce consumption under pre-defined conditions would enhance—not compromise—grid reliability by directly addressing congestion and capacity constraints. Dispatching generators up or down keeps the grid reliable by avoiding overloads, and large customers should be given the same option. We’ve heard talk of introducing clustering studies for loads; and Oncor effectively has been in the midst of one for months in the South Dallas area; arguably the entire Permian plan is a load clustering study.
Meanwhile, customers in Dallas and the Permian are waiting for power.
There’s a better way. Let customers interconnect if they want to invest their own capital in doing so, just like generators. If they want to build a factory that has a 200 MW demand, but the utility can’t serve that demand consistently and will need to occasionally curtail them, that’s fine. They know the risk when they invest the capital, just like ERCOT generators. If the risk is too high (or it impacts their return too much) then they simply won’t build or will wait for full network upgrades to avoid curtailment risk. However, if they can consume 200 MW on 330 out of 365 days a year, they may be perfectly willing to do so.
Encouraging large load customers to invest their own capital and accept curtailment risks will foster innovation in energy management. Developers can implement advanced load management technologies to optimize energy consumption and enhance grid stability—offering a reliable and sustainable power solution.
Of course, it should be clear that customers can choose to wait for full network service that doesn’t have curtailment risk if they choose, to, and a customer that initially signs up for a curtailable interconnection may still desire for a full network upgrades over time.
For the more technical members of our audience, one approach to ERCOT and the utilities should encourage anyone who can be a controllable load resource (CLR) to participate. Any load that is a CLR should be allowed to energize whenever they choose to do so and take the risk that they may not have power all the time. However, not every load can meet the technical requirements to qualify as a CLR, and being a CLR can’t solve every problem, so ERCOT also needs to develop a way to curtail some loads, if necessary, outside the of real-time operations. CLR participation could be an important operating model for large load customers, especially data centers, to align power consumption with grid capacity. ERCOT should develop comprehensive guidelines that simplify the technical requirements for CLR qualifications and ensure developers have clear pathways to leverage this resource. Giving interconnection advantages to CLR-enabled data centers (whether they curtail or whether they are paired with BESS and other dispatchable generation) is in the economic interest of Texas.
A second way to resolve this matter technically might be a modification to the near-real time reliability study ERCOT performs every hour (called HRUC). This study could be changed to send a curtailment instruction to loads willing to be curtailed if they are contributing to reliability issues. Regardless of the solution; it is urgent that a solution be developed.
Of course, other reforms are also helpful, like increasing study fees. Regardless of the technical approach to resolving this policy matter, there is an urgent need to address this fatal flaw in load interconnections, and trust investors to assess curtailment risks and act accordingly. This competitive, investor-driven approach has already proven itself effective. It’s the Texas way, and Texas can’t afford to lose it.
About the firm
Goff Policy provides advocacy and advisory services for buyers and sellers in the Texas energy market, ensuring our clients are well-informed, represented, and empowered to make the best decisions possible in an ever-changing landscape. We specialize in energy, infrastructure, and municipal policy, offering tailored, region-specific strategies to help clients navigate complex regulatory, political, and business challenges.
Founded in 2019 by Eric Goff, the firm brings deep expertise in regulatory affairs, stakeholder engagement, and market strategy. We monitor ERCOT and Texas Public Utility Commission (PUC) proceedings daily to provide our clients with timely insights and strategic positioning.
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For more information, go to goffpolicy.com, or email Eric directly at eric@goffpolicy.com
Vice President, Transmission & Markets at Clean Grid Alliance
5moMISO applies Quarterly Operating Limits on resources that have connected but still waiting on the sorts of upgrades that ERCOT might not require. Does ERCOT apply anything like MISO's QOLs for any reason or at any point of the interconnection process, or does the grid help assume the risk of ERCOT's commitment and dispatch decisions coming up short in reliability terms (to extend MISO's rationale for QOLs as a hedge on operational challenges)?
Intelligence Is the New Capacity
5moAbsolutely, and well said, although I’m not sure I’d offer to RUC loads…and leeway for loads willing to offer “flexibility” should be understood to include loads willing to come off in a 15 to 60 minute notice period (to address resource adequacy) as well as those capable of coming off the grid instantaneously (to address grid adequacy/contingencies).
Director, Transmission Market Analytics at Leeward Renewable Energy
5moThis is a good read. Although, curtailment risk is a good pricing mechanism in general, in my opinion, it does not make sense for a market like ERCOT. 1) Curtailment risk is a short term mechanism, and leads to the same issues that generators have been facing. 2) Curtailment risks will cause load bidding wars, which will tend to increase LMP’s in load pockets. Without needed transmission solutions, this will cause pseudo-Yuri kinds of situations. On top of that, it will increase the basis risk for generators in the market, which is a direct result of insufficient transmission A good long term strategy could be to encourage more Transmission buildout by implementing Load interconnection processes that assign Network Upgrade costs to CLRs, similar to how other regions assign them to generators.
Advisor - Consultant - SME
5moExcellent piece, Eric! The curtailment risk is a catalyst for innovation both in technology and in operations. Generators live with this every day, and utilize various approaches to quantify and mitigate a similar risk, and these ideas can be adopted on the load side.
I agree with your points Eric. It is clear that something must be done quickly to allow large loads onto the system without damage to reliability or load project value. An interim approach might be to require they be interruptible to some extent (CLR requirement initially) as we earmark their area of the network for more buildout.